Credit In A Box

1. Credit In A Box Using Technology to Transform B2B Credit Service Delivery Gary Brooks, October 2013

2. Outline Agenda • Traditional role of Credit • The Switch from Defender to Playmaker • Objectives • (Semi-) Automation of Process Steps • Single Portal Concept • Credit Insurance • Location and Outsourcing • Conclusion

3. The Key Role of Trade Credit • Vast majority of inter-company and inter-country sales are on credit. • Typically > 80% • Trade AR is usually biggest (and riskiest) asset on corporate balance sheets • Typically 35 - 40% of total assets - and 65% of current assets • It often exceeds primary money supply M1 by a factor of 2 on average • And it’s a key source of funding for companies – typically twice the size of bank credit • And a major cause of business failure……especially through late payments • European Commission report in recent years said that: • 33% of EU businesses regard late payment as a survival-threatening issue • 46% France, 50% Italy, 51% Greece (and growing) • Argues that late payments hinder the functioning of the Single Market and cross-border trade Passive or poor credit management processes and tools contribute to this problem

4. Credit Dept.’s Historic Role • Despite the economic importance of trade credit, Credit has not traditionally enjoyed a high profile in Europe • Often seen as clerical and routine – “back office” • Surveys show typically 70-80% of Credit time spent in routine activities: Chasing, allocating, query resolution. Admin. and re-work • It has tended to be part of Finance – “Accounts Receivable” “Sales Ledger” • Companies have undervalued and under-invested in Credit • Credit professionals also play down their contribution and importance • This is changing as: • The world recovers from the financial shocks of recent years • Credit is more difficult to obtain • Working capital is more important corporately and macro-economically • Bodies like ICTF actively promote the profession • Credit management becomes central to corporate strategy……. ………..requiring professional expertise and tools

5. Cabin Crew to Co-Pilot • Credit is becoming part of an overall customer strategy • Increasing awareness of the importance of good credit practice for customer relations and competitiveness • >30% of firms vary terms to attract new business; >20% to retain business • Around 35% support customers through short-term cash flow issues • Proactive credit management adds value to services, products and competitive ability • Generating sales, repeat sales and loyalty • So……. Credit can impact widely on many elements of corporate performance • Moving from back-end clerical role to front end • Credit could (should) be part of a Sales or Marketing function • Customer segmentation and scoring • Identifying opportunities to sell • Commercial credit granting • Effective customer life-cycle management • Using sophisticated analysis tools • In the hands of expert professionals • So how do we move away from the traditional, transactional role, to be more front line?

6. How do we get from this:

7. To this?

8. What are our Challenges and Constraints? • Perceptions • Reporting lines and politics • Budget • Headcount • Scalability • Location • Centralised vs. decentralised • In-sourced or out-sourced • Multiple credit policies and attitudes to risk • ERP effectiveness • Complexity of groups and ERPs • Quality of reporting • Language capability, with “language critical mass” • Time zone coverage

9. I hope to show that • Specialist web-based solutions can overcome ERP limitations • Billing, risk management, collections and cash processing can be largely automated • Multiple policies can be supported, including credit insurance • “High touch” approach can be achieved, at relatively low cost • Language coverage and local presence can be largely simulated • Aggregated views possible for multiple companies and ERPs • Enabling centralised Shared Service for complex organisations • Outsourcing can be supported in the same way • Solutions scalable for projects, acquisitions, business changes • Resource can be redeployed from transactional to value-added • Cost of credit can be reduced • Location – a choice rather than a constraint • Organisation and reporting lines can be flexible • Credit In a Box

10. Step Through the Process Credit Insurance

11. Step 1: Targeting Creditworthy Businesses • Most information providers supply pre-qualified, highly-targeted leads based on multiple criteria: • Country / region • Industry type • Size (turnover, people…..) • Parent-subsidiary linkages • Financial strength • Key ratios • Credit rating • Credit limit • Etc. • To ensure your business is chasing the right prospects and channelling time and cost appropriately • Data can be injected into a CRM or ERP system to generate a prospect base • Prospect becomes a pre-qualified customer

12. New Customer Applications • A CRM tool can convert a prospect to a customer, but also….. • Workflow solutions can be bought or developed to e-enable request, review and approval of new customer applications • Review and approval flow are electronic and new customers created automatically • Change requests operate in the same way • Intelligent solutions have a link to a data agency, to qualify with a Yes / No / Refer • Same principle as point-of-sale credit vetting • Credit professionals handle the No, Refer and complex cases • Automates the transactional enables focus on value-added work • Location-agnostic • ERP-agnostic • Low cost • Organisationally flexible

13. Credit Information • Many competitive offerings in the European market; prices • Reports traditionally accessed online and downloaded • Increasingly, data can be delivered via XML into ERP or other linked or web-based vehicle, from which it can be analysed and scored • Similarly, data can be shot into scorecards and on-line decision tools to automate the credit-granting process • For example: specialist web-based risk management solutions that offer credit limits based on status agency or other calculation • Much limit-setting can be automated within a set of simple rules based around value and risk etc.

14. Use of Agency Data in Web-based Solution

15. Ratings • For publicly quoted companies, ratings are available on-line or down-loaded from major ratings agencies. Avoids the need for in-house analysis

16. Others Score and Trend all Companies • Other suppliers provide a similar facility, for all entities, with their own rules-based failure scores and trends. Management data can also be input • Custom score cards can be built

17. Billing • It is possible to automate and / or outsource the billing process • Daily invoice files can be transferred directly from accounting system to suppliers. • Processed under SLA and hosted online via a web portal. • Invoices despatched to customers in any format they choose including: Print, EDI, XML, fax and email. • Delivered in all major EDI standards, such as XML, CSV and PDF, directly • Supplier technology allows printing in a number of sizes, folds and envelopes • Invoices can be automatically consolidated, based on pre-defined rules to reduce production, printing and mailing costs • Invoices can be available online and dispatched to customers same day. • Access to reduced postage due to scale and posting location • The same suppliers can be used to send statements and dunning letters

18. Order Management • Normally managed through your ERP or financial software • Typically, risk category determines rules for individual customers • Orders are blocked, for example if credit limit will be (is) breached and / or invoices are unpaid • Block kicks in after X days, depending on risk category • Third party software can also manage this automatically and in semi-real time, if your ERP is not able • Rules can be loosened or tightened, depending on appetite for risk, economic climate etc. • Enables centralised control, risk mitigation at a relatively low cost if rules are sensible

19. Collections • Banks of collectors are no longer affordable • A number of collections software solutions exist • Some are truly e-enabled – “self service” 24/7 • Multi-language, currency, policy – customer size / risk / importance • Policy can change dynamically, based on behaviour, risk score • Dispute management is integrated • Communications by e-mail, fax, paper, SMS • Copy invoices • Credit card (other auto. payments) enabled • Ensure “high touch” in local language • Manage Controller priorities and workload • Good activity reporting and trending • With Collections Agency“on tap” • Increasingly, incorporating credit limits, risk ratings and incorporating order blocking • Diallers can be used to manage and drive call activity • Higher control, lower cost, ERP- and location-agnostic • Enables Finance or Sales to play collections role

20. Collections Tool Data Flow

21. Overview of Process

22. Multiple Policies

23. Effectiveness Reporting

24. Payments • Smart management of payment methods enables a good level of automation. Reduced transaction processing time • Looking for low cost, working capital benefits • Automatic clearance • Lockbox • Direct debit, traite automatique, RIBA….. • SEPA in future (Spain February 2014) • Ideally, credit / debit card for certain markets and / or transaction sizes • PayPal and alternatives for certain sectors • Integrated into some collections tools

25. Cash Allocation • Most major ERPs provide some automatic matching • Most international banks provide rules-based matching software for multiple ERPs • Increasingly, specialist web-based suppliers offering multi-algorithm matching solutions • Takes overnight feed of open items, bank / card statements and matches according to rules. Fed-back file updates ERP • Much of allocation done before Credit’s day starts • Remittance advice data, cheques scanned in and process continues dynamically during the day, with update files crossing • Matching rates of 70 - 90% + depending on complexity of algorithms, level of confidence and level of machine learning • Centralised or outsourced for economies of scale, reduced cost and segregation of duties • Scalable with same rule sets • Evident benefits of cost, speed, working capital

26. Cash Application

27. On-going Alerts and Reviews • Once the customer is on-board, it joins the monitoring and review cycle • A number of solutions enable on-going automatic monitoring and alerts, including reference agency tools, web-based solutions, XML to ERP • They typically offer, via daily AR feed: • Recommended credit limits (agency, underwriter, custom criteria), updated daily / weekly / monthly • These can be insurance underwriter accredited • Key financial and other data • Risk and failure ratings and trends • Payment behaviour trending • Notice of publication of financials • Legal notices • Press releases / market intelligence • Positive / negative alerts • Individual customer and aggregated portfolio dashboards and trends • Some provide cash flow forecasts based on real payment history • Others calculate bad debt provisions based on risk ratings, overdues and other factors • Aggregation and visibility across the organisation, available to all stakeholders • Automation of the 60-80% • Location- and ERP-agnostic • Scalable

28. Examples: Portfolio Hierarchy Views

29. Portfolio Risk Maps

30. Bad Debt Calculation

31. Customer Profile

32. Customer Data

33. Supporting Credit Insurance • A number of software tools support insured businesses • Can be integrated with client ERP and are mutually updating • On-going credit limits within discretionary limit (status agency / highest cleared balance) • Credit limit increase prompts and requests • Automatic insured credit limit updates • Automated overdue reporting • Automated claims and claims status • Collections case referrals and updates • Low cost, location and ERP not an issue • Scalable and multi-level

34. One-Stop Shops? • The web-based sector is evolving quickly • Most of the web-based solutions started life as a specialist tool (credit data / insurance / collections / cash app.) and this historic source remains their strength • Some providers are developing their tools to be more end-to-end • Examples: Risk software providers developing dunning triggers and comms. ; collections software providers incorporating risk ratings, credit limits……. • Apps being developed to help SMEs without Credit specialists to manage collections and cash flow • You may have one or more specialist solutions to manage in your journey to automation • Not many “total solutions,” but the market is going in this direction

35. Some suppliers are ERP-specific • Historically, it has been time-consuming and expensive to develop good credit management functionality within major ERPs • There are, however, some ERP-specialist suppliers • Provide bolt-on within your ERP • Enable import of credit data from multiple sources (limits, ratings, financials, key ratios…..) • Custom score cards can be built within the tools • Enable direct connection to insurers (limit management, overdue reporting, claims management) • And to collections agents • Dunning collections strategies can be designed, and triggered using ERP’s AR and customer master data • Also dispute management workflows. • To direct employee actions and priorities and document audit trails • All data and history in one place and not one or more web-based tools

36. ERP-Specific Solutions

37. Credit Insurance Inside the Box • Credit insurers and finance providers can provide Credit In A Small Box, especially to SMEs • In general, they: • Advise on prospects and markets • Underwrite and set limits • Provide credit information / opinions • Collections service • Portfolio reporting and monitoring • Bad debt management • Some (or their brokers) have developed solutions to help clients manage limits within DL

38. Location and Outsourcing • Web-based solutions enable location to be a choice rather than a restriction • Support management of complex global organisations and portfolios • Aggregate data from multiple ERPs and promote simplification and standardisation • Language capability does not all need to be in-country • Share access and data with all • Enable “ownership” and reporting line of Credit to be a variable • Shared service enabled, in virtual environment • Also support outsourcing of transactional work, using own or BPO-proprietary tools • Enabling redeployment to value-added Credit roles • Credit Centre of Excellence

39. A New Paradigm

40. In Conclusion • Available tools enable (semi-)automation of most steps in process (transactional, low value, low risk) • Manage highly complex environments • Multi-language and currency • Simplify and standardise • But also support multiple policies • Provide platform for shared service • And /or for outsourcing (agency / BPO) • Focus resource on High Risk / High Reward • Obtain real value from staff expertise (the <20%) • But retain “high touch” impact • Using web-based solutions via daily data feed • Irrespective of legacy ERP(s) • Third party services available “on tap” • Location no longer an issue • Scalable and low-cost • At the risk of being labelled a Philistine • Credit In A Box…….. • …………………………… or Boxes